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Nokia is scheduled to release its Q3 results on Thursday. We expect the company's overall sales decline to improve from last quarter's figure of about 10%. Nokia has built a strong pipeline of orders in Europe and has significant opportunities in the U.S. and China as carriers increase their network spending. Our pre-earnings note details our expectations for the quarterly release.

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RadioShack's recent debt restructuring deal will give the company more runway for a turnaround. It has been plagued by declining sales and compressed gross margins of late. While we expect the company's gross margins to bounce back slightly, there could be a significant upside to our price estimate if it is able to stabilize sales and cut costs, thereby expanding margins further.

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Wal-Mart Cuts Its Growth Forecasts And Slows Store Expansion
  • By , 10/23/14
  • tags: WMT TGT AMZN
  • Amid an uncertain retail environment hindered by sluggish consumer spending, store giant  Wal-Mart (NYSE:WMT) has cut its growth forecast for the current fiscal year. During an investor day presentation last week, the retailer lowered its sales growth forecast for fiscal 2015 to 2%-3%, down from its previous guidance of 5%. The company hasn’t seen positive comparable sales growth for almost six quarters now and its recent forecast suggests that this will continue in the next two quarters. The weakness in Wal-Mart’s comparable sales growth can be gauged from the fact that it expects only a marginal increase in its revenues despite the aggressive roll-out of Neighborhood markets. The company plans to open a total of 240 small stores during the year along with 120 Supercenters. The Big-Box format in the U.S. has almost run its course and the future of retailing lies in the small store arena. Being the biggest retailer in the country, Wal-Mart has been at the forefront of this change. Although the company has expanded its small store network aggressively so far, it has surprisingly reduced the number of new store openings for the next year. Wal-Mart plans to open just 200 Neighborhood markets in fiscal 2016, while analysts at Janney Montgomery Scott LLC were predicting the figure to be around 500. Even though 200 looks a decent figure for store openings in a single year, it is almost insignificant in the context of the small store industry. Wal-Mart’s bigger stores have been struggling with lower store traffic for the past couple of years now. This can be attributed to the fact that U.S. buyers have been gradually shifting to online and small store shopping. However, CEO Doug McMillon believes that there are a couple of more reasons responsible for the slump in foot traffic. He stated that in-stock levels in several stores aren’t up to the mark and the checkout lines are too long, which is discouraging buyers from visiting Supercenters. Understandably, the retailer has significantly reduced its Supercenter roll-out for the next year to just 60-70 outlets. With the pullback in expansion plans, Wal-Mart projected its capital expenditure for the next year at $11.6 billion, down from its earlier forecast of $12.9 billion. However, it will invest close to $1.5 billion in e-commerce projects next year, 50% more than what it plans to do this year. To bolster its comparable sales growth, Wal-Mart needs to have a sound e-commerce platform, for which its has to take giant strides. E-commerce retail industry is going through a tremendous growth phase, and the retail giant should make the most of it. It is likely that sometime in the future, online retailing’s honeymoon period will come to an end. Wal-Mart needs to transform its e-commerce channel into a significant revenue contributor long before that happens.
    PG Logo
    P&G Q1'15 Preview: Markets Slowdown And Currency Headwinds Should Test P&G Brands
  • By , 10/23/14
  • tags: PG UL CL KMB
  • Procter & Gamble (NYSE:PG) is scheduled to report its Q1FY15 results on October 24. Last fiscal year, sales for the world’s largest consumer goods company stood at $83 billion, marginally higher than sales from fiscal year 2013. (Fiscal years end with June.)  Company-wide product volumes witnessed a 3% growth in FY14 while currencies had a negative impact of 2% during the period. P&G’s two largest business units (fabric & home care and baby, feminine & family care) had the highest growth rates in volumes across all business units. Product volumes from the fabric care business segment registered a 5% growth rate. Similarly, the baby, feminine and family care business unit registered a 4% growth in year on year volumes. However, growth in these business units in reported terms was restricted by currency headwinds, which had a negative 3% impact. Growth in the remaining business units of beauty, grooming and health care was tepid, weighed down by weak market conditions in developed and emerging economies. The weakness in these business units was further attenuated by P&G’s many underperforming brands. Recently, The Wall Street Journal reported that P&G plans to sell more than half of its 200 brands to focus exclusively on profitable brands. We expect to gain more clarity on this from the upcoming earnings conference call. Despite the weak top line performance, due to extreme currency volatility, P&G has managed to expand its margins on a year-on-year basis through prudent reductions in manufacturing and non-manufacturing overhead expenses. The operating profit margin for FY14 stood 1 percentage point higher over FY13, at 18.4%. Similarly, the net earnings margin (from continuing operations) expanded 40 basis points to 14.1% in FY14. The company has an ambitious five-year plan lasting until fiscal year 2016 and expects to cumulatively save about $10 billion in cost of goods sold, marketing expenses and non-manufacturing related overhead. It saved $1.2 billion in cost of goods sold in FY2013 and delivered on its earlier guidance of saving $1.6 billion in cost of goods sold in FY2014. We expect to see additional cost savings on these fronts that should create margin accretion in FY15. See our complete analysis of Procter & Gamble Sluggish Developed Markets to Weigh on Results Last fiscal year, the U.S. accounted for more than 35% of total P&G sales and registered a meager 0.7% year on year growth. Comparatively, its International markets portfolio fared better in FY14, although reported sales only grew 0.6% year on year. This is because the reported sales from International economies were significantly depressed from currency fluctuations in these markets in FY14. P&G’s geographic portfolio is also skewed towards developed economies, unlike its competitors. North America and Western Europe alone accounted for 57% of total FY14 sales. This proportion for other U.S. based FMCG (i.e, Fast Moving Consumer Goods) majors such as Kimberly-Clark and Colgate stand at 50% and 44% year to date in 2014. Although the domestic U.S. market looks to be gaining momentum, it is yet to deliver on results. In its latest quarterly presentation released October 23, 2014, Unilever reported that the North American market for FMCG products grew 1% on a year on year basis. Market growth in Europe however was much disappointing and declined by over 2% last quarter due to significant price deflation in FMCG products. We expect tepid sales from P&G’s developed markets portfolio, weighed down by sluggish market growth and contracting economies. P&G has already witnessed a slowdown in its beauty product portfolio, especially among hair care, hair color and facial care products in developed markets. Unfavorable Mix Could Curtail Emerging Market Volume Growth In addition to slowing sales in developed markets, P&G has not been able to capitalize on its success in emerging markets due to its large brand portfolio. Volumes from markets excluding North America and Europe have remained robust. However, the proportion of overall sales from high growth markets such as Asia and Latin America have remained at 18% and 10%, respectively, for the last three fiscal year periods. We believe the reason for slacking sales, despite a surge in volumes, is an unfavorable mix of products in these markets. For example, within fabric care, P&G has registered a high single-digit growth in volumes from developing markets and a low single-digit growth in volumes in developed markets. Despite this volume expansion, market share was flat in FY14. Likewise, P&G home care volumes in developing and developed markets in FY14 grew in the same range as fabric care last fiscal year. This resulted in a 50 basis point increase in market share in home care in FY14. Health care sales in FY14 faced a strong influence of unfavorable mix as geographic expansion in developing markets in low-priced product lines such as Vicks dragged down net sales. While in the long term, the expanding geographic reach of P&G products should lead to an acceleration in sales, unfavorable product-price mix could erode net sales in the near term. Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    UTC's Results Rise On Higher Commercial Aerospace Demand; Organic Sales Growth Improves
  • By , 10/23/14
  • tags: UTX
  • United Technologies (NYSE:UTX) reported solid growth in its revenue and profit in the third quarter as the company’s sales rose across all its segments. The industrial conglomerate’s organic sales growth also recovered to 5% (on a year-over-year basis) in the third quarter after falling marginally in the previous quarter. We figure this is a good trend which indicates that the overall demand environment across all businesses of United Technologies (UTC) is improving. The company’s third quarter revenue rose by 5% annually to $16.2 billion, and its earnings rose by 32% annually to $2.04 per share on additional gains from cost cutbacks. Based on this double-digit earnings growth and 5% revenue growth, the company expressed confidence that it would be able to achieve its 2014 earnings target of $6.75-6.85 per share. This compares to UTC’s earnings of $6.21 per share in 2013. We are in the process of incorporating UTC’s third quarter earnings and shall update our analysis shortly. See our complete analysis of UTC here Weakness From Military Aerospace & Europe Is Moderating For the past many months UTC had been facing a mixed demand environment across its aerospace, building and industrial businesses. While demand from commercial aerospace sector remained strong, that from military aviation remained weak due to lower military spending from the U.S. government. Similarly, across the company’s building and industrial businesses, consisting of Otis, Carrier and Kidde/Chubb, demand was strong from North America and Asia, but was weak from Europe. In the third quarter however, we saw that weakness from both military aerospace and Europe moderated. As a result, UTC’s aerospace sales rose from military aerospace sector and the company’s building and industrial sales rose from Europe. We figure that if the demand environment across both military aerospace and Europe continues to improve then results across UTC’s aerospace, building and industrial businesses will likely further grow. Commercial Aerospace Drives Q3 Results UTC’s sales growth in the third quarter was driven by its aerospace segments namely Pratt & Whitney, which makes airplane engines, and Aerospace Systems, which makes airplane components. Sales across both these segments rose as airplane manufacturers sourced engines and components at a higher rate. Airplane makers including Boeing and Airbus have been raising their production rates over the past few years to fulfill greater demand for commercial airplanes from airlines around the world. UTC is benefiting from these production rate hikes as its engine and airplane components are getting shipped at a higher rate. Driven by this trend, sales at both Pratt & Whitney and Aerospace Systems segments rose by over 5% per year in the third quarter, and operating profit at both these segments also rose in double-digits. Separately, for the first time in 2014, UTC’s sales from the military aerospace sector improved driven by Sikorsky. However, we will wait for this performance to sustain for a few more quarters before changing our macro view of the military aerospace sector. United States’ military spending continues to remain weak, and as UTC derives the majority of its military aerospace business from the U.S. government, we anticipate this weak spending from the government to continue to weigh on UTC’s military aerospace business. Having said this, we also anticipate that growth from commercial aerospace will likely outweigh weakness from military aerospace in UTC’s results for the foreseeable future. UTC generates roughly 55% of its overall revenue from commercial and military aerospace sectors, with the former constituting a larger share in the company’s business. Higher Residential HVAC Sales In The U.S. Lifts Building Segment Results In UTC’s building and industrial businesses, which constitute the remaining roughly 45% of the company’s top line, results were driven by higher sales from the residential heating, ventilation and air-conditioning (HVAC) market in the U.S.. With the U.S. economy and the country’s housing market improving steadily, we figure this growth in UTC’s building sales from the U.S. will likely sustain. On the flip side, new equipment orders at Otis were flat from China in the third quarter. This indicates that the strong growth in sales that we’ve seen at Otis China over the past many years will likely moderate in coming months, and as China constitutes the largest market for Otis, this decline in sales growth from the country will likely weigh on the overall growth of Otis and UTC. Looking ahead, we figure commercial aerospace and building markets in the U.S. will likely continue to be growth drivers for UTC. Emerging markets including China are uncertain at this time, as growth from these markets could slow in coming months as indicated by the flattish new equipment orders from China at Otis. While military aerospace and Europe seem to have bottomed out, but it is uncertain when recovery in these markets will pick up steam. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Dow Chemical's Third Quarter Earnings Surge Higher On Margin Expansion
  • By , 10/23/14
  • tags: DOW DD MON
  • The Dow Chemical Company’s (NYSE:DOW) third quarter earnings surged higher on thicker margins due to higher net pricing and cost savings through productivity improvements and higher capacity utilization. The company’s adjusted earnings per share (EPS) jumped by $0.22 or 44% y-o-y to $0.72. Although, its sales revenue grew by just over 5%, the company’s adjusted EBITDA margin improved by over 240 basis points year-on-year. We attribute a majority of the net increase in Dow’s adjusted EBITDA during the third quarter (around 45%) to higher operating leverage or increased use of fixed assets, which results in a decrease in marginal production costs. According to the company’s recent presentation at the Credit Suisse Basic Materials Conference, a 100 basis points improvement in the annual operating rate boosts its EBITDA by more than $200 million. During the third quarter, Dow’s operating rate stood at 86%, up by 400 basis points over the same period last year. Dow is a diversified chemical industry giant operating in specialty chemicals, advanced materials, agro-sciences and plastics business segments. It delivers a broad range of technology-based products and solutions to customers in approximately 160 countries, and in high growth sectors such as electronics, water, energy and agriculture. Last year, Dow reported annual sales of approximately $57 billion earning adjusted net income of around $2.9 billion. Based on the recent earnings announcement, we have updated  our price estimate for Dow to $51/share, which is 16.6x our 2014 full-year adjusted diluted EPS estimate of $3.07 for the company. See Our Complete Analysis For Dow Most of the growth in Dow’s consolidated adjusted EBITDA during the third quarter came from the Performance Plastics and Performance Materials divisions. Together, these two divisions contribute almost 70% to the company’s total value by our estimates. While the Performance Materials division serves a wide range of market sectors including agriculture, mining, construction, and electronics and entertainment, the Performance Plastics division primarily sells flexible plastic packaging products and elastomers. Here, we take a closer look at what drove operating income from these divisions higher during the third quarter and what the long-term operating margin outlook for these divisions are. Performance Plastics During the third quarter, Dow’s Performance Plastics adjusted EBITDA increased by around 31% y-o-y, as sales increased by almost 9% and margins expanded by more than 560 basis points. Here, the key driving factor was pricing. The company’s average net pricing for the division was up 6% y-o-y, mainly driven by the fast-growing demand for packaging and specialty plastics products. These products find use in food packaging and medical and hygiene equipment and make up around 80% of the division’s total sales revenue. The key growth drivers for these products include global population growth, the need to reduce food waste, a growing focus on consumer convenience, and improving socioeconomic status due to the rising middle class. Going forward, Dow expects to improve its Performance Plastics adjusted EBITDA margins by 200-400 basis points over 2013 levels by 2017. Most of the margin expansion at Dow’s Performance Plastics division is expected to come from lower raw materials costs as a result of the growth in the company’s ethylene production capacity on the U.S. Gulf Coast. Ethylene, the simplest unsaturated hydrocarbon, is one of the most important feedstock in the plastics value chain. It is used in the manufacture of polyethylene, also called  polythene, which is the most widely used plastic in the world. Ethylene is most commonly derived from steam cracking of either naphtha or ethane. Naphtha is derived from crude oil (naphtha constitutes around 15-30% of crude oil by weight), while ethane is the second-largest component of natural gas after methane. With the shale gas supply boost in the U.S. resulting in a cheap source of ethane, there has been a divergence in operating margins between naphtha and ethane based ethylene production plants in the U.S. Dow is therefore growing its ethylene capacity in the U.S. while also improving feedstock flexibility of its existing ethylene production facilities to leverage the favorable feedstock scenario. Last year, the company restarted its St. Charles Olefins 2 plant in Louisiana, in a bid to lower its operating costs by reducing the amount of ethylene purchased. Going forward, Dow plans to increase its ethylene production capacity by almost 20% over the next three years, most of which would come from the start-up of a new world-scale ethylene production facility in Texas. Dow started construction work on the project in June this year and it is expected to come online by 2017. Performance Materials Dow’s Performance Materials adjusted EBITDA also surged by more than 60% y-o-y during the third quarter. This was primarily due to better margins since sales revenue increased by just 8%. The division’s adjusted EBITDA margin improved by more than 460 basis points by our estimates. The company attributed this sharp increase in margins to cost savings from productivity improvements and higher asset utilization. Going forward, Dow expects to expand its performance materials adjusted EBITDA margins by as much as 400 basis points over last year by 2017. Most of this margin expansion is also expected to come from a reduction in raw material costs for the division because of the integration of a new on-purpose propylene production facility at Dow Texas Operations in Freeport. Propylene is a key raw material used by Dow’s performance materials division. It is primarily used in the production of propylene oxide, epoxy, and plastics additives. These chemicals derived from propylene are used in the manufacturing of various end products including automobiles. With the new propylene dehydration (PDH) plant, Dow would be able to shift its feedstock exposure from volatile propylene to abundant propane, a natural gas liquid. Construction on the PDH plant is more than 20% complete and it is expected to come online by mid next year. The company expects to generate incremental EBITDA of $450 million annually on a run rate basis from this backward integration move. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    E*Trade Q3 Results Driven By Interest Revenues, Trading Commissions
  • By , 10/23/14
  • tags: ETFC AMTD SCHW
  • E*Trade Financial (NASDAQ:ETFC) announced its Q3 2014 earnings on October 21, reporting a 5% year-on-year (y-o-y) increase in net revenues to $440 million. E*Trade’s asset-based business grew by almost 12% year-on-year (y-o-y) to $269 million, and a recovery in trading volumes led trading commissions to rise by 5% over the prior year quarter to $108 million. Additionally, the account maintenance fees and services charged by the brokerage also rose by 12% to $45 million during the quarter. We have a $21 price estimate for E*Trade’s stock, which is roughly in line with the current market price.
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    China Unicom Earnings Preview: 3G, 4G Adds, VAT In Focus
  • By , 10/23/14
  • tags: CHU CHA CHL
  • China Unicom (NYSE:CHU) is expected to release its third quarter earnings on Friday, October 24. The second-largest wireless carrier in China reported strong interim 2014 results last quarter, as its profits rose about 26% year-over-year (y-o-y) to RMB 6.7 billion ($1.1 billion) on solid sales growth in the mobile and broadband businesses. Mobile service revenue grew by about 12% y-o-y to RMB 81.3 billion ($13.2 billion) driven by the net addition of over 40 million 3G and 4G subscribers in the one year period ended June 30. In the fixed-line business, China Unicom’s service revenue grew by about 4.5% y-o-y to RMB 45.1 billion ($7.32 billion), driven by double-digit sales growth in broadband services. When the company releases its third quarter results, we expect its wireless business to continue to show strong growth on account of an expanding subscriber base and an improving 3G-4G mix. However, it is likely to be impacted by the company’s comparatively lackluster performance in adding new wireless subscribers in Q3 2014 compared to the same period last year as well as the introduction of value added tax (VAT) on telecom services by the government. In the wake of aggressive expansion in the 3G/4G space by market leader  China Mobile (NYSE:CHL), China Unicom reported an increase of just 3.7  million wireless subscribers in the two-month period ending August 2014, compared to over 7.7 million in the same period in 2013. We also expect the company’s average revenue per user (ARPU) for wireless services to be slightly lower y-o-y on account of the company’s focus on low-cost smartphones in recent quarters. In the fixed-line broadband business, we expect China Unicom to report robust revenue growth on the back of a steady increase in the number of subscribers in July and August. China Unicom has around a 34% share of the total fixed-line broadband market (by subscribers) in China, with the largest share (53%) being held by China Telecom.  Our current price estimate for China Unicom is $17, which is about 10% above the market price.
    VZ Logo
    Growing Wireless Subscribers, FiOS Adoption Drive Verizon's Q3 Results
  • By , 10/23/14
  • tags: VZ S T
  • Verizon (NYSE:VZ) announced a strong set of Q3 results on Oct 21, as healthy wireless subscriber growth helped overall operating revenues increase by 4.3% year-over-year (y-o-y) to about $31.6 billion. The wireline business reported a marginal slump in total operating revenues, although consumer revenues grew by 4.5% y-o-y on strong FiOS subscriber adds. Net income grew by over 65% to $3.7 billion in the quarter, reflecting the fact that the company now enjoys complete control over Verizon Wireless, after acquiring Vodafone’s 45% stake earlier this year. The acquisition saddled Verizon’s balance sheet with significant debt, which resulted in the company’s interest expenses more than doubling to about $1.26 billion in Q3 2014. The largest wireless carrier in the U.S. added over 1.5 million postpaid connections during the quarter, including 1.1 million tablet connections. The postpaid subscriber growth reflects a 7% increase over an already impressive previous quarter and a 44% increase over the third quarter last year. In wireline, Verizon added 162,000 net new FiOS Internet connections and 114,000 net new FiOS Video connections in Q3, taking its total subscriber base to 6.5 million and 5.5 million, respectively. Despite increased competition from AT&T (NYSE:T), Sprint (NYSE:S) and T-Mobile, Verizon’s retail postpaid churn was almost flat at 1% from the prior year quarter, validating the carrier’s innovative offerings and high quality network. The carrier also generated strong cash flows totaling $8.4 billion in the quarter, which more than offset the increase in cash taxes and other cash outlays such as interest payments and pension contributions. The more efficient cost structure prepares Verizon well for the coming years, as new subscribers become increasingly tough to find in a saturated market, and rivals further bridge the 4G LTE coverage gap with the industry leader. We have a price estimate of $52 for Verizon’s stock, which is over 5% ahead of the current market price.
    Four Severely Flawed Portfolios
  • By , 10/23/14
  • tags: IWM SPY
  • Submitted by Wall St. Daily as part of our contributors program Four Severely Flawed Portfolios By Alan Gula, Chief Income Analyst   If you can predict the future with certainty, then stop reading. This article isn’t for you. But if you’re simply human, like the rest of us, you shouldn’t construct your portfolio as if you’re Nostradamus. After all, the point of a diversified portfolio is to protect us from both known risks and unforeseen outcomes. The problem is that the financial markets are complex – there are thousands of securities and an infinite number of potential investment allocations. Consequently, many investors struggle to construct sound portfolios. And, worst of all, most do-it-yourself investors only realize their mistakes after suffering debilitating losses. With that in mind, I’ve identified four very common – but misguided – allocations that retail investors gravitate towards. 1. The “Herd Chaser” Portfolio Buying nothing but the most popular stocks or exchange-traded funds is one of the worst mistakes you can make as an investor – yet it’s also one of the most common. The thing is, the herd might actually be right for a time, which could give you a false sense of confidence. But in the end, the herd will always end up being massively wrong at the worst time. Indeed, all of the investments in the “herd chaser” portfolio were extremely popular at the beginning of 2014, as you can see by their market capitalizations and fund assets. But an equal-weight version of the “herd chaser” portfolio would be down around 7% this year, more than 10% worse than the S&P 500. 2. The “Yield Hog” Portfolio Many investors live for high yield and fat payouts. And, understandably, they take comfort in seeing cash hit their accounts on a regular basis. However, yield hogs miss the point that total return – not just yield – is what matters. Total return includes both capital appreciation and dividend yield. The securities listed below have an average yield of 10.1%. Unfortunately, if you had constructed an equal-weight version of this portfolio at the beginning of the year, you’d be down around 4% in 2014. 3. The “Mattress Cash” Portfolio After long, successful careers, the Baby Boomers suffered through the tech and housing bubbles just as they were nearing retirement. It’s not surprising, therefore, that most Boomers are conservative with their portfolios. In fact, a typical Baby Boomer allocation might look something like the one below: The problem is, a cash-dominated portfolio won’t provide a positive real rate of return (return after adjusting for inflation) in an era of zero-interest rate policy. Instead, it’s going to suffer a loss of purchasing power over time. And even though this portfolio has held up much better than the previous two this year, it’s far too conservative . . .  something the Millennial generation, which may be too financially conservative itself, should keep in mind. 4. The “Single Stock” Portfolio The portfolio below can hardly be considered a portfolio. The problem, of course, is a lack of diversification, leaving the investor exposed to a high level of stock-specific risks. It’s really more like gambling than investing… Yet many investors still find themselves with unacceptable exposure to a single, high-conviction holding. Now, your own portfolio won’t look exactly like any of the above (I hope), but the reality is that most investors do fall into some of the traps illustrated in these hypothetical examples. Besides the problems I’ve already discussed, all of these misguided portfolios suffer from a lack of international diversification (equity home bias), and are significantly underexposed to fixed-income. Ideally, a well-diversified portfolio would include U.S. stocks, foreign stocks, and bonds in order to reduce risk and increase exposure to a variety of markets. With that in mind, I’ll discuss a more balanced (and successful) approach in my next article. Safe investing, Alan Gula, CFA The post Four Severely Flawed Portfolios appeared first on Wall Street Daily . By Alan Gula
    The Best Dividend Stocks for 2015
  • By , 10/23/14
  • tags: SDRL RIG
  • Submitted by Value Stock Guide as part of our contributors program The Best Dividend Stocks for 2015 by  Shailesh Kumar Which are the best dividend stock values that will potentially return superlative income and capital gains performance in 2015? The time to look for these ideas is now. The recent market declines have created some extraordinary values in the dividend paying stocks. We are also in the time of the year when many investors are looking at their tax plans and considering repositioning their portfolios for the year 2015. The following companies across a wide range of industry spectrum have been selected for their excellent dividend yield, history of above average dividend growth rates which are likely to continue based on their dividend coverage, and of course, valuations. You will find that most of the stocks in this list are currently trading at very close to their 52 week lows. This is not a surprise as the broader market indices have not done much this year except to provide palpitations to anxious investors. As the readers of Value Stock Guide, you understand the value of patience. Coupled with good upfront research, and careful selection to maintain a diversified portfolio, these stocks should form a solid basis for a dividend portfolio. I run these screens to find ideas to recommend as part of the VSG portfolio to my members. A number of my members also maintain a dividend portfolio as part of their investment plan, and this screen in particular also helps them structure their dividend portfolio. One way to create a diversified portfolio is to get exposure to a variety of industries and sectors. To help with this, let’s list these stocks by sectors 1. Basic Materials Company Name Symbol Market Capitalization Dividend Yield (Annualized) Dividend Growth Rate (5 year avg) Dividend Coverage (EPS TTM/IAD) P/E (Price/TTM Earnings) Industry AGRIUM INC. AGU $12.0B 3.59% 93.71% 1.9 14.5 Agricultural Chemicals TRANSOCEAN LTD RIG $10.9B 9.95% 102% 1.9 5.7 Oil & Gas Drilling and Exploration SEADRILL LTD SDRL $11.3B 17.44% 17.98% 2.2 2.7 Oil & Gas Drilling and Exploration   We all have seen the oil prices declining. There are indications that the supply is starting to exceed the demand while at the same time, OPEC is leaning towards keeping the production up to keep/gain market share. If the oil prices continue to soften, higher cost production will start to shut down. There may also be slowdowns in drilling and exploration activity. This explains the low multiples and high dividend yields being sported by the O/G drillers. Seadrill also has a few management challenges it is coping with. 2. Consumer Goods Company Name Symbol Market Capitalization Dividend Yield (Annualized) Dividend Growth Rate (5 year avg) Dividend Coverage (EPS TTM/IAD) P/E (Price/TTM Earnings) Industry FORD MOTOR CO F $54.2B 3.58% 20.11% 3.2 8.7 Auto Manufacturers TUPPERWARE BRANDS CORP TUP $3.4B 3.98% 25.32% 1.7 14.8 Packaging and Containers NU SKIN ENTERPRISES INC. NUS $2.6B 3.17% 24.57% 3.8 8.7 Personal Products COACH INC COH $9.7B 3.84% 35.10% 2.1 12.4 Textile, Apparel, Footwear and Accessories   3. Financials Company Name Symbol Market Capitalization Dividend Yield (Annualized) Dividend Growth Rate (5 year avg) Dividend Coverage (EPS TTM/IAD) P/E (Price/TTM Earnings) Industry WESTERN UNION CO WU $8.4B 3.16% 65.72% 2.9 11.1 Credit Services BANCO LATINOAMERICANO DE COMERCIO EXTERIOR SA BLX $1.2B 4.60% 13.60% 1.8 12.4 Money Center Banks BANK OF NOVA SCOTIA (THE) BNS $71.3B 4.01% 6.14% 2.3 10.2 Money Center Banks TORONTO-DOMINION BANK (THE) TD $85.3B 3.64% 9.03% 1.8 11.7 Money Center Banks ROYAL BANK OF CANADA RY $99.1B 3.67% 7.26% 2.1 12 Money Center Banks MAIDEN HOLDINGS LTD MHLD $831.5M 3.86% 12.89% 2 13.3 Property and Casualty Insurance SAFETY INSURANCE GROUP INC SAFT $891.1M 4.72% 11.84% 1.6 14.5 Property and Casualty Insurance SUSQUEHANNA BANCSHARES INC SUSQ $1.9B 3.60% 12.47% 2.6 11.2 Regional Banks RIVER VALLEY BANCORP. RIVR $52.7M 4.35% 1.84% 3 7.9 Regional Banks NATIONAL PENN BANCSHARES INC NPBC $1.3B 4.18% 14.87% 1.7 14.1 Regional Banks NATIONAL BANKSHARES INC NKSH $207.4M 3.69% 6.05% 2.2 11.5 Regional Banks FIRST CAPITAL INC FCAP $63.1M 3.65% 3.13% 2.4 11.9 Regional Banks PROVIDENT FINANCIAL SERVICES INC. PFS $1.1B 3.54% 6.40% 1.9 14.5 Regional Banks   Some of the banks in this list are very small so you need to consider the liquidity in the shares and also the fact that these banks tend to be heavily concentrated in a single geographical area and are therefore have risks aligned with the economic risks of the local area. Canadian banks appear to offer sound value and great income stream and should be actively considered. 4. Industrial Goods Company Name Symbol Market Capitalization Dividend Yield (Annualized) Dividend Growth Rate (5 year avg) Dividend Coverage (EPS TTM/IAD) P/E (Price/TTM Earnings) Industry STURM RUGER & CO INC. RGR $961.5M 4.16% 33.16% 2.5 9.5 Aerospace/Defense Products and Services CHINA YUCHAI INTERNATIONAL LTD CYD $689.8M 6.64% 64.38% 2.6 5.9 Diversified Machinery DEERE & CO DE $30.2B 2.85% 16.47% 4 9.4 Farm and Construction Machinery   Although China Yuchai is based in Singapore, its business is heavily dependent on China. Consider country risk if you would like to look into this stock deeper. 5. Services Company Name Symbol Market Capitalization Dividend Yield (Annualized) Dividend Growth Rate (5 year avg) Dividend Coverage (EPS TTM/IAD) P/E (Price/TTM Earnings) Industry COPA HOLDINGS SA CPA $4.4B 3.84% 59.67% 3.2 8.5 Regional Airlines TEXTAINER GROUP HOLDINGS LTD TGH $1.8B 5.84% 15.36% 1.7 10.4 Rental and Leasing Services   This list of 25 of the best dividend stocks for 2015 includes many foreign names. If the USD were to weaken further, these stocks may benefit (for the US based investors). I have no opinion on the currency market but in any case low valuations afford a great deal of protection against capital loss should the global economy continue to be volatile. As usual, do your own due diligence before you invest any money in these stocks. The post The Best Dividend Stocks for 2015 by Shailesh Kumar appeared first on Value Stock Guide .
    What the Fear Index Is Telling Us About Stocks Now
  • By , 10/23/14
  • tags: SPY TLT
  • Submitted by Profit Confidential as part of our   contributors program What the Fear Index Is Telling Us About Stocks Now Over the past few months, I warned my readers the stock market had become a risky place to be. While I also suggested euphoria could bring the market higher than most thought possible—to the point of irrationality—the bubble has now burst. Key stock indices are falling and fear among investors is rising quickly. Please look at the chart below of the Chicago Board Options Exchange (CBOE) Volatility Index (VIX). This index is often referred to as the “fear index” for key stock indices. If this index rises, it means investors fear a market sell-off. If it declines, investors are complacent and not worried about the stock market falling. Chart courtesy of In just the last 18 trading days (between September 19 and October 15), the VIX has jumped 122% and now stands at the highest level since mid-2012. It has also moved way beyond its 50-day and 200-day moving averages, which shows strength and momentum to the upside from a technical perspective. Sadly, the VIX isn’t the only indicator telling us that investors don’t want to be in the stock market. Below you’ll find the NAAIM Exposure Index chart, a measure of equity exposure of active money managers (the so-called smart money). Chart courtesy of Active money managers continue to reduce their exposure to equities as key stock indices fall. On September 2, 82% of their collective portfolios were exposed to the stock market. Now, it’s only 33%. This represents a decline of 60% in their equity market exposure. On the fundamental front, the stock market is constrained as well. Each day, we are seeing deteriorating economic data from around the world. We just learned retail sales in the U.S. economy for the month of September declined 0.3% from August. (Source: U.S. Census Bureau, October 15, 2014.) Retail sales have been subdued since the beginning of the year. And it means consumption in the U.S. economy is slowing. The stock market had a great run over the past five years. While I expected the Dow Jones Industrial Average to more than double from its 2009 low of 6,440 to 13,000 and even 14,000…the Federal Reserve’s historic money printing program fueled the index to 17,000. This year will be the first time in five years when stock prices do not rise for the year. And small-cap stocks are having their worst year (in terms of percentage losses) since 2008. Dear reader, when you have a stock market that rises when the Federal Reserve says it is going to print more paper money (out of thin air) and declines when the Fed takes that punch bowl away, you no longer have a stock market rising on the fundamentals of economic and corporate growth, but on speculation. And that’s what I have been warning about all along—real bull markets are not built on money printing.         The post What the Fear Index Is Telling Us About Stocks Now appeared first on Stock Market Advice | Investment Newsletters – Profit Confidential .
    Plunging Oil Prices Next Big Investment Opportunity?
  • By , 10/23/14
  • Submitted by Profit Confidential as part of our   contributors program Plunging Oil Prices Next Big Investment Opportunity? While corporate earnings continue to come in solid, stocks continue to be sold. It’s not all the time that stocks follow oil prices, but they certainly have this time around and the selling momentum has gained on deflationary pressures from producer prices to declining expectations for global economic growth. And the selling is happening to companies that beat consensus with their earnings, like J.B. Hunt Transport Services, Inc. (JBHT), which beat Wall Street estimates for sales and earnings in what was a very solid quarter for the trucking company. For J.B. Hunt, sentiment just wasn’t strong enough to carry the stock materially higher, even in the face of declining prices for diesel fuel, which is a big bonus for that company’s bottom-line. The autumn sell-off also flies in the face of reduced pressure on the Federal Reserve to begin raising rates as recent data shows a softening of economic activity on a global basis. If oil was the catalyst and economic data the accelerator, it’s important to remember where stocks have come from. The equity market has been due for a material correction for a number of quarters. It didn’t even need a reason for a correction only because share prices have come so far over the last several years. The breakdown in oil prices has been truly spectacular and is now seriously affecting the business case for many energy producers. And the breakdown isn’t just due to increasing domestic production; it’s a breakdown in sentiment based on declining expectations for the global economy. So stocks have sold off and they may go further, but a five to 10% price correction from the all-time record high is perfectly normal. And since stocks have been trending consistently higher for the last two years straight, what’s transpired in recent weeks is what I believe to be healthy for the longer-run trend. In this environment, the guide for equity investors should continue to be what corporations report about their businesses. Especially among dividend-paying large-caps, balance sheets are in great shape and the cost of capital remains low. Top-line growth is mostly single-digit, but for a number of quarters now, corporations have been able to raise their prices without affecting demand and this goes right to the bottom line. With dramatic price action comes opportunity. With oil prices so significantly lower, it’s time for investors to consider the oil and gas sector for investment-grade opportunities. With the momentous reorganization taking place among the Kinder Morgan Energy Partners, L.P. (KMP) group of companies, long-term, income-seeking investors can now put this company on their radar. Regardless of the price of oil or natural gas, the product has to be transported, processed, and stored. And the price of oil while being transported, in a lot of cases, has nothing to do with the cost of transportation; pipelines typically benefit from long-term contracts. This is why a large oil and gas company with significant pipeline and storage capability is now a noteworthy opportunity.   The post Plunging Oil Prices Next Big Investment Opportunity? appeared first on Stock Market Advice | Investment Newsletters – Profit Confidential .
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    Cree's Q1'15 Results Hit By Weak LED Demand Though Lighting Continues To Grow Strongly
  • By , 10/22/14
  • Leading LED manufacturer Cree (NASDAQ:CREE) reported its Q1 2015 earnings on October 21st. At $428 million, revenue was in line with the company’s preliminary earnings (announced on October 2), but weaker than its initial guidance of $440 million to $465 million. Strong growth in LED lighting and Power and RF was more than offset by a 13% sequential and 20% annual decline in LED products. Lower LED revenue and a higher mix of lighting sales (which have comparatively lower margins) resulted in lower gross profit, which declined approximately seven percentage points year to year to 31.8%. Cree’s non-GAAP net income declined 42% sequentially  to $30 million, or $0.24 per diluted share. In Q1 2015, Cree spent $68 million on capital projects and $54 million on share repurchases which resulted in negative free cash flow of $55 million. The company targets lower inventory levels and reduced capital spending in Q2 2015, as it plans to reduce the LED factory production rate (in line with demand) to support higher free cash flow over the next several quarters. In tandem, it aims to return to positive cash flow in the ongoing quarter with this reduction in both its working capital balances and its capital spending. Though Cree is lowering its LED factory capacity investments, it targets continued investment for infrastructure projects to support its longer term forecasted growth for fiscal 2016 and 2017. Lower LED demand and margins are two keys trends impacting Cree’s near-term growth prospects. However, the company believes that the lower LED revenue, combined with recent factory productivity improvements and innovations, have created available capacity to support future growth and significantly reduce the company’s capital equipment needs for the balance of fiscal 2015. Our price estimate of $52 for Cree is over 50% higher than the current market price. We continue to believe in the company’s long-term growth potential. The continued growth momentum, combined with a strong balance sheet, gives Cree the flexibility to respond to new market opportunities. We are in the process of updating our model for Q1 2015 earnings.
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    Lexmark Earnings: MPS And Perceptive Business Propel Revenues
  • By , 10/22/14
  • tags: LXK HPQ
  • Lexmark International (NYSE:LXK) released its Q3 earnings on October 21st, and the company posted yet another quarter of solid results, as its managed printer services (MPS) and Perceptive software businesses delivered growth. Furthermore, the company reported 3% year-over-year growth in revenues to $921 million, even as the exit from inkjet division tempered results. The revenues and earnings per share exceeded the guidance range. The stock market reacted positively to the results and the stock price increased by 4%, reflecting market sentiment. It’s imaging solutions and services (ISS) revenues, excluding the inkjet business, grew by 5%, buoyed by 7% growth in sales of laser hardware. Within the ISS division, managed print services (MPS) revenue grew by 12% year over year to $205 million; non-MPS revenue was flat at $570 million and inkjet revenue declined by 29% to $60 million. Additionally, Lexmark’s Perceptive software division continued to post growth as revenues grew by 46% to $86 million (including $16 million revenue from ReadSoft). See our full analysis on Lexmark Outlook For Q4 And 2014 For Q4 FY14, the company expects revenues to decline by 2% to 4% year over year and non-GAAP earnings per share to be in the $1.1 to $1.2 range. Lexmark has revised its revenue guidance for FY 2014 upwards and expects revenue to decline at a slower rate, specifically by 1% or less. Non-GAAP EPS guidance has also been revised upwards to $4.05 to $4.15 range. MPS Revenues Boost Laser Printer Revenues Laser printer and cartridge division is its biggest business unit and makes up for over 77% of Lexmark’s estimated value. According to IDC, the worldwide hardcopy peripherals market declined for the first time after three consecutive quarters of growth. However, to some extent, resilience in laser hardware sales has offset the decline in total sales. This trend seems to have prevailed in Q3 as well, and Lexmark’s result indicates that it gained the most in laser printer related sales. While hardware revenues grew by 8% year over year to $196 million, supplies revenue declined 2% to $593 million. According to research firms such as Gartner and IDC, Lexmark is a leader in the MPS business. MPS contracts for the company have increased over the past 24 months and offset the decline in non-MPS revenues in the previous quarters. In our pre-earnings note published earlier, we had stated that we expect MPS to propel revenues. MPS was the key contributor to Laser revenue growth as these revenues grew by 12% to $205 million during the quarter, it boosted laser revenues by 5% year over year during the quarter to $775 million. Going ahead, we believe that MPS integrated with Perceptive’s solutions will deliver value to Lexmark’s growing client base. Service contracts tend to be sticky, and MPS is a high margin business compared to selling hardware.  We expect it to become the biggest driver for Lexmark going forward. Perceptive Business Revenues Grow The Perceptive software division is the second biggest business unit and makes up nearly 9% of Lexmark’s estimated value. As Lexmark plans to become an end-to-end solution provider, Perceptive Software is becoming an increasingly important division for Lexmark. During Q3, revenues from this division grew by 46% to $86 million. During the quarter, clients chose to sign up for Perceptive’s evolution subscription service rather than the perpetual license, deferring recognition of the revenue from the second quarter. As a result, the company did witness excellent growth across subscription, maintenance and professional services. While the annual subscription contract value for Perceptive increased by 136% from $19 million in 2013 to $45 million in Q3 2014, licenses and maintence revenues grew by 36% and 62% respectively. The company expects the electronic content management (ECM) and business process management (BPM) segments, which serve a $10 billion dollar industry, to grow about 10% year over year. The company is targeting this segment through Perceptive software, and it continues to build Perceptive’s product portfolio through organic and inorganic means. We also expect the seamless integration of Perceptive’s array of solutions with MPS to bolster revenue for the company. We are in the process of updating our Lexmark model. At present we have a  $44.77 Trefis price estimate for Lexmark, which is 5% above its current market price. Understand How a Company’s Products Impact its Stock Price at Trefis View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
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    Kimberly-Clark Gains From Stronger Product Demand In International Markets
  • By , 10/22/14
  • tags: KMB PG
  • Kimberly-Clark (NYSE:KMB) posted strong sales and profits in its third quarter ending September 30, 2014. Quarterly sales increased 3.4% to $5.45 billion, helped by an equal contribution from volume expansion and price increases. K-C International remained the pillars of growth in Kimberly-Clark’s geographic portfolio, growing 10% during the quarter. Operating profits increased 15% during the quarter, resulting in a 1.8% expansion in operating profit margins in Q3FY14. In addition to contributions from strong sales, Kimberly-Clark’s FORCE (Focused On Reducing Costs Everywhere) program generated nearly $100 million in cost savings during the quarter. Additionally, lower general and administrative expenses have supported overall margin expansion, offsetting the effect of a $55 million increase in input cost inflation in Q3FY14. We are in the process of updating our  price estimate of $112 for Kimberly-Clark’s stock to incorporate the latest quarterly results. See Our Full Analysis for Kimberly-Clark Personal Care and Consumer Tissue Businesses Ride on Emerging Market Growth The Personal Care segment, which accounts for over 45% of total sales, marked a robust 4% growth during the quarter to reach $2.48 billion in sales. Organic sales grew 6% for the segment, driven by a 12% gain in organic sales from K-C International. Organic sales of diaper products in China, Russia and Eastern Europe grew 25% while sales in Brazil witnessed a 10% increase. Other categories that contribute a smaller portion to K-C International, such as feminine care, adult care and baby wipes, also reported double-digit organic growth rates. On the flipside, organic sales in North America were down, with volumes down by more than 1% while pricing partially offset the decline in volumes. Product volumes from brands in the adult care segment, such as Kotex and Depend increased at double-digit pace, benefiting from innovations and product promotions. However, volumes declines in baby and child care brands such as Huggies and GoodNites masked the gains in adult care in North America. The strong growth rates in volumes and pricing from K-C International lifted margins for the Personal Care division to 19.5% in Q3FY14 from 18% in Q3FY13, making it the most profitable business line for Kimberly Clark. Kimberly-Clark’s Consumer Tissue business, which accounts for about 31% of total sales, registered nearly 4.5% year on year growth to reach $1.7 billion in quarterly sales. Organic sales grew 3% for the segment, supported by strong volume performance in North America from the Viva Vantage paper towels and promotion campaigns and higher selling prices in International markets such as Latin America. Operating profits also witnessed a surge during the quarter, increasing 22% year on year to $285 million, benefiting from higher prices and volumes. Weak North American Market Slows K-C Professional Sales The K-C Professional segment had a relatively subdued quarter in comparison to Personal Care and Consumer Tissue segments. Sales grew 3.6% to $873 million while margins posted a meager 50 basis point expansion, held back by weak market performance and price erosion in North America. Net sales in North America were 3% lower while Europe and K-C International registered year on year growth rates of 6% and 14% respectively in Q3FY14 sales. Historically, K-C Professional has been Kimberly-Clark’s most profitable division. However, margins from the Personal Care stood higher in Q3FY14, supported by double-digit growth from key emerging markets. Health Care Business Spin-off Scheduled for October End Lastly, Kimberly-Clark’s Health Care segment continued to drag down overall sales. Year on year, sales in the Health Care segment declined 2.7% to $392 million in Q3FY14 due to falling selling prices. Volumes remained flat on a year on year basis due to an increase in demand for protective gear, and surgical and infection-prevention products since the diagnosis of Ebola in the U.S. Margins on the other hand declined about 4% compared to Q3FY13, with quarterly operating profit decreasing by 26% to $52 million due to pricing pressure. Kimberly-Clark will be spinning off its Health Care business by the end of Friday, October 31, and has initiated a restructuring plan earlier this year to improve organizational efficiency and offset the impact of stranded overhead costs after the spin-off. As part of the restructuring, Kimberly-Clark plans to cut up to 1,300 jobs, primarily from its Health Care business through 2016. The spin-off of the health care business should add to improving sales and margins for Kimberly-Clark going forward. Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    Broadcom's Q3'14 Growth Driven By Strength In Connectivity & Broadband
  • By , 10/22/14
  • Broadcom (NASDAQ:BRCM), a leading semiconductor provider for wired and wireless communications, reported is Q3 2014 earnings on October 21. At $2.26 billion, revenue was up 10.7% sequentially and up 5.3% year over year (at the high end of the guided range and ahead of consensus estimates), driven by strength in set-top box broadband access and connectivity products. The Infrastructure business was roughly flat (in line with expectation), due to a pause in data center and service provider spending. Non-GAAP product gross margin declined by 70 basis points sequentially due to stronger than expected cellular baseband revenue. Non-GAAP earnings per share (EPS) was $0.91 per share, $0.07 above the first call consensus of $0.84 per share. Broadcom announced its decision to exit the cellular baseband business in Q2 2014 on account of intense competition in the market. The company believes this will allow it to eliminate the ongoing losses from the business and enable it to focus on its core strengths in other segments. Broadcom anticipates to complete the cellular cost reductions by year end, faster than originally forecasted. The company expects its revenue to decline marginally in the current quarter, in line with seasonal trends. It anticipates revenue from the baseband business to decline to $50 million, and believes its positions in all three business segments (Broadband, Infrastructure & Connectivity) remains strong. New products across its portfolio will help retain its growth momentum in the future, in our view. Our price estimate of $38.49 for Broadcom is slightly above the current market price. We are in the process of updating our model for the Q3 2014 earnings. See Our Complete Analysis for Broadcom Here Broadcom’s broadband and connectivity revenue (combined) came in ahead of its expectation at $1.51 billion, up roughly 16% sequentially. Strength in connectivity products was driven by the company’s continued leadership in high-end smartphones, tablets and access points as well as the increasing penetration of  802.11AC and 2×2 solutions. The broadband business continues to witness steady growth driven by leadership in set-top box and broadband modems. Strength In Connectivity Driven By Leadership In High-End Smartphones Broadcom witnessed a 20% year-on-year growth in its connectivity business in Q3 2014. The company expected its exit from the baseband business to negatively impact the low-end of its connectivity business, but remains confident of retaining its strength in the high-end. It witnessed exceptional strength and increased traction at the higher end of the business in Q3 2014, which was offset by a decline in the lower end. Broadcom is the No.1 player in connectivity with most of the high end smartphones using Broadcom connectivity solutions. The company does not foresee any change going forward. In Q3 2014, Broadcom’s connectivity business was driven by seasonal demand and new phone launches, as well as increasing penetration of 802.11ac and 2X2 solutions, which drove higher average selling price (ASPs) in the quarter.  During Q2 2014, Broadcom launched the second generation of its 2×2 MIMO 802.11ac combo chip, which improves its industry leading performance for high end smartphones and tablet resulting in faster speeds, lower power consumption, less interference and lower board space compared to its competitors. The 2×2 MIMO 802.11ac combo chip is currently shipping in volume production. Broadcom also launched the industry’s first GPS Sensor Hub combo chip, which significantly reduces power consumption in smartphones and tablets while enabling always on health fitness and life logging applications. The company is also ramping its newly launched LTE and TDS CDMA Solution while maintaining its market leading position in 3G. Additionally, Broadcom sees new growth potential in both emerging markets such as for the Internet-of-Things, as well as the increasing electronics penetration in the automotive and wearable devices markets. The company continues to drive leading-edge features, to maintain its strength in high end smartphones and tablets, and is strengthening and diversifying its portfolio with new low power connectivity solutions for the Internet of Things and the support of iBeacon and HomeKit. Though Broadcom anticipates its broadband and connectivity business to be down sequentially in Q4 2014, we believe the business will see strong growth in the future driven by product cycles and new launches from key customers. Broadband Business To Be Driven By The Set-Top Market & Access Business Broadcom’s strong performance in Broadband in Q3 2014 was driven by growth in the set-top box and broadband access businesses. The company continues to see solid trends in access products as operators deploy the latest technologies including VDSL upgrades to power faster connections in the home. It gained share in VDSL, enjoyed increased operator spending and saw a richer mix of technologies such as vectoring and channel bonding. Broadband access over cooper witnessed meaningful upgrades and the company expects the next DSL standard ( to begin ramping in 2015. Broadcom also claims to be gaining share in PON and sees new product cycles coming in Broadband Access. The set-top box product group continues to perform well too, and Broadcom gained market share in emerging markets in Q3 2014 as it deployed new HD designs, particularly in Latin America. The company benefits from the rising digital penetration in emerging markets and a ramp to richer features, including multi-stream transcoding, more tuners and a stronger mix of MoCA-enabled platforms. Driven primarily by rising demand from emerging markets, the global set-top box shipments are forecast to grow at a CAGR of 9.7% through 2016. Another long-term growth driver for the set-top box market is the transition to HEVC and Ultra HD. Broadcom claims that the industry is still in the early transition (to Ultra HD) phase and sees this strength as a powerful product cycle that will contribute growth over the coming years. Broadcom is one of the leading players in the worldwide set-top box integrated circuit (IC) market. Q4 2014 Outlook - Net revenue in the range of $2.00 billion to $2.15 billion, of which cellular SoCs should be roughly $50 million. - Broadband connectivity and infrastructure networking to be down sequentially. - Non-GAAP gross margin to be 55%, +/- 75 basis points. GAAP gross margin to be 53%, +/- 75 basis points. - Non-GAAP R&D and SG&A expenses to be down $40 to $60 million and GAAP to be down $50 to $70 million.   View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    Colgate Pre-Earnings: Organic Sales In North America, Currency Headwinds In Emerging Markets In Focus
  • By , 10/22/14
  • tags: CL
  • Colgate-Palmolive (NYSE:CL) is slated to release its Q3FY14 results on October 24th. Sales for the largest oral care product manufacturer have been tepid this year, due to significant impact from currency effects and the strengthening US dollar. Net sales in Q2FY14 were flat compared to a similar period a year ago, at $4.35 billion. Currency fluctuations had a negative four percentage-point  impact of sales, excluding which organic sales increased 4% compared to Q2FY13. Within organic sales, growth in volumes contributed 2.5% while pricing gains contributed 1.5%. For the six months in FY14, organic sales grew 5.5%, boosted by a 4% increase in volumes. Gross profit margins for the company expanded by 50 basis points on a year on year basis to 58.6% last quarter, supported by cost savings from its funding-the-growth initiatives and partially offset by higher raw material and packaging materials costs. Operating profits registered a higher growth in Q2FY14, growing 8% to $980 million, helped by one-off restructuring and disposal of asset charges that depressed margins in Q2FY13. On a non-GAAP basis (excluding these charges for Q2FY13), operating profits increased 2% to $1.06 billion in Q2FY14. This resulted in a 60 basis point expansion in non-GAAP operating profit margins during the second quarter of FY14. See our full analysis for Colgate-Palmolive Colgate-Palmolive’s oral, personal and home care products accounts for nearly 88% in total sales. The company is the market leader in most oral care product categories, and has been gaining market share through consistent product innovation and promotions. In the toothpaste category, Colgate has a 44% share worldwide, and is the market leader in the U.K., Germany, Australia, China, Brazil, Mexico, India and Russia. Colgate is also the market leader in the manual toothbrush category, with a worldwide market share of over 33%. However, Colgate lags behind P&G in the mouthwash category, with a market share of 17% worldwide. Mouthwash products have lower product penetration in emerging economies, helping P&G retain its market leadership in the segment through its strong network in developed economies. Oral Care Sales in North America Could Grow Faster on Premium Products Within the domestic U.S. market, Colgate has a 35% share, behind market leader P&G which has a 38% share, and has been aggressively rolling out products to close the gap. Recently, the company launched its latest toothpaste innovation, Colgate Enamel Health Toothpaste, and believes its entry into the fastest growing segment within toothpastes, enamel strengthening, could lead to market share gains going forward. In addition to innovation in toothpastes, Colgate has also benefited from strong demand for premium toothbrush products such as Colgate 360º and Colgate Slim Soft in its biggest markets. The North American market accounts for about 20% of Colgate’s oral, personal and home care revenues. Therefore, strong product uptake from a new product in the premium category should lift volume growth and expand selling prices for Colgate. Impact of Currencies on Emerging Market Organic Sales in Focus Colgate has a much stronger brand presence in emerging markets, as observed from its market leadership position in the biggest emerging markets of China, Russia, Brazil, India and Mexico. In the Latin American market, organic sales increased 8% last quarter, supported by decent volume gains and strong price expansions. However, currency headwinds had a negative 12% impact on organic sales, decreasing net Latin American sales by 4% in Q2FY14. Currency headwinds in Asia had a negative 4.5% influence on organic sales, which registered a 3% increase in Q2FY14, driven by robust demand for toothpastes and manual toothbrushes from Philippines, India and Thailand. Similarly, smaller markets of Eurasia and Africa also had a strong demand for manual toothbrushes and toothpastes, registering an organic sales growth rate of 6.5% year on year in Q2FY14. However, currency headwinds were stronger than the organic growth rate, at 7.5% last quarter, resulting in a 1% decline in reported revenues from the region. For the upcoming quarter, we expect lower impact of currency headwinds on organic sales from emerging markets. The Euro has depreciated significantly against the U.S. Dollar, while most emerging markets currencies have held their ground against the strengthening Dollar this quarter. On the flipside, organic sales could increase further in these markets on the back of higher discretionary income levels and the introduction of premium products from Colgate. Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    Bristol-Myers Squibb Earnings Preview: What We Are Watching
  • By , 10/22/14
  • tags: BMY MRK RHHBY
  • Bristol-Myers Squibb (NYSE:BMY)  will release its Q3 2014 results on October 24th. We expect strong performance from its key drugs Eliquis and Yervoy. Additionally, the anti-viral drugs business will see the impact of the approval of the HCV drug Daklinza in Europe and Japan. Overall, we expect reasonable growth for Bristol-Myers Squibb. Additionally, the recent HCV approval and the expected approval of its immuno-oncology drug Nivolumab are something to cheer about and could support the company’s growth over next 5-6 years. Here is what the investors can expect from Bristol-Myers Squibb’s upcoming earnings. Our price estimate for Bristol-Myers Squibb stands at $36, implying a discount of about 30% to the market.
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    IBM Earnings: Revenues Miss Expectations Amidst Corporate Restructuring
  • By , 10/22/14
  • tags: IBM MSFT HPQ
  • International Business Machines (NYSE:IBM) posted its Q3 results on October 20. The company reported a marked slowdown in business due to weak client spending and an anemic demand in software sector. As a result, the company reported 4% year-over-year decline in revenues to $22.39 billion (excluding revenues from discontinued operations that include the x86 server business and Microelectronics), and 17% decline in net income to $3.5 billion. The market reacted negatively to the results and the stock price declined by 7% during the trading session on Monday. Even before the results were announced, sentiment surrounding the stock was negative after IBM said that it had at last achieved an agreement to transfer its loss-making semiconductor unit to Globalfoundries Inc. For the quarter, the company witnessed wide decline in sales across its businesses.  While its core software business posted 1.6% decline in revenues to $5.70 billion, Global Technology Services (GTS) revenues declined by 2.9% year over year in constant currency to $9.21 billion. Furthermore, its Global Business Services (GBS) revenues declined by 2.2% to $4.49 billion, despite growth in new business initiatives (i.e.,  cloud, business analytics and big data). IBM’s system and technology division continued to disappoint and reported 15% year-over-year decline in revenues to $2.43 billion, due to product transitions and market disruptions. See our full analysis on IBM Business Restructuring To Affect Topline And Profitability IBM’s system and technology division, which was once a strong cash generator for the company, has witnessed a steady decline that the copany has been unable to properly confront. While this division contributed 25% to IBM’s total revenues in 2006, its contribution fell to just 14% in 2013. The company has also systematically divested its non-profitable units within the hardware business over the past few years, and realigned its workforce to reduce costs. Recently, the company closed the deal sell its x-86 server division as well to Lenovo for $2.1 billion. On Monday, the company announced that it was transferring its semiconductor unit to Globalfoundries, an alliance partner and the former chip manufacturing operations of AMD. Though framed as a sale, IBM is contributing a significant amount to the deal.  It is paying Globalfoundries $1.5 billion to take the unit over and transferring its large patent portfolio as well.  It has also established a 10-year supply agreement for Power and other devices with the foundry.  As a result of these disinvestment, IBM’s revenues will  be lower by $7 billion, however, its margin profile will improve since these businesses posted pretax losses of about $500 million. The company is also recording a $4.7 billion charge on the deal.  Note that IBM’s Semiconductor business is a strategic asset for both the company and the US government.  IBM is a technology leader, supplies critical ASICs to government agency systems, and is engaged as the leading partner in state and other research consortia. The level of regulatory review will be very high and there could be opposition. Growth Economies Disappoint While revenues from the Americas’ were flat at $10.1 billion, the EMEA region (Europe/Middle East/Africa) reported a decline of 8% in revenues to $5 billion. However, the decline in total revenues was accentuated by the decline in revenues from growth markets, which declined by 5%. This decline was driven by a 7% decline in revenues from BRIC countries — Brazil, Russia, India and China. Branded Middleware Boosts Middleware Revenues The software business, which includes the middleware division together with operating systems division, is the biggest contributor to IBM stock value and makes up nearly 47% of our estimate. During the quarter, the software segment (middleware and operating systems combined) reported 2% year-over-year decline in revenues to $5.7 billion. While IBM’s flagship WebSphere software reported single-digit growth at 7%, Rational suite of software reported steep decline in revenues at 12%. Nevertheless, since these solutions cater to the growing markets that include mobile, social and security tools, we expect software division to post robust growth in the near future. Cloud Data Rollout to Positively Impact GTS Revenues in Future The Technology Services division (GTS) accounts for 21% of IBM’s stock value according to our estimates. During Q3, GTS revenues declined by 2% year over year to $9.2 billion. As part of a long-term strategy, IBM sold its customer care business process outsourcing (BPO) services business in Q4 2013 to focus on high margin verticals. The divestiture of this business was completed in Q1 FY14 and continued to negatively impact GTS revenues in Q3. Furthermore, the company stated that it will roll out more cloud data center infrastructure  in the coming quarter to expand its footprint of services, which should augur well for its Softlayer business that encompass strategic outsourcing (10% of estimated value) and integrated technology service (5% of estimated value) division. New Business Initiatives Drive Growth at GBS The Business Services division (GBS) contributes over 11% to IBM’s stock value according to our estimates. In line with our expectation, GBS reported a 1% year-on-year decline in revenue to $4.5 billion, primarily due to declines in traditional packaged application implementation. Moreover, the company continues to be impacted by pricing pressure and client renegotiations, as well as a reduction in elective projects. However, double-digit growth in digital front office, which includes mobile (>100% growth), business analytics (8% growth) and cloud (80% growth), offset the decline in packaged implementation to some extent. As new verticals become a larger part of GBS, they’ll contribute more to the top line performance going ahead. Server and Storage Division Revenues Declines, Albeit at a Slower Pace Server and storage division, which was once the mainstay of the company, is witnessing a continuing decline in revenues. During the quarter, revenues for this division declined by 15% to $2.43 billion. While revenues from System-Z, Power Systems and System-X declined by 35%, 12% and 9% respectively, revenues from storage declined by 6%. The hardware business has been under pressure for a number of quarters. The System-Z mainframe business is in the latter quarters of a product cycle; as a result, sales of system Z suffered by 35%. However, the Power Systems business is focused on high-end Unix and Linux computing. The company is looking to regain its lost market share in midrange systems, and launched entry-level or scale-out POWER8 systems in June, which had a good start compared to the previous cycles. Finally, with the sale of the x86 businesses to Lenovo approved, IBM can move towards reorganizing this troubled business.  It remains a strategic, if very depleted, business to IBM’s integrated technology model and it is now even more dependent on outside parties for critical, even proprietary offerings. We are in the process of updating our IBM model. At present, we have a  $227 Trefis price estimate for IBM, which is about 35% higher than the current market price. Understand How a Company’s Products Impact its Stock Price at Trefis View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
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    Harley-Davidson Earnings Review: Retail Sales Rise As Expected To Strengthen Year-End Shipment Estimates
  • By , 10/22/14
  • tags: HOG
  • On October 21st,  Harley-Davidson (NYSE:HOG) announced lower revenues in Q3 compared to last year, on lower wholesale motorcycle shipments. This result was in line with analyst expectations as the company looked to hold-off shipping motorcycles, after retail sales remained soft in the second quarter, to avoid inventory build-up. Sales from the motorcycle and related products divisions, which together form around 80% of the net valuation for Harley by our estimates, declined 4.2% year-over-year to $1.13 billion in Q3. What underscores the motorcycle maker’s strong performance this quarter is a 3.8% jump in worldwide retail sales, despite cycling the strong 15.5% retail sales growth in the third quarter of 2013, following the launch of the Project Rushmore bikes last August. Harley looked to protect its premium brand image and maintain supply in line with demand, and therefore wholesale shipments and consequently financial results this quarter appeared weak. As expected, the re-introduction of the Road Glide, improved availability of the Street 500 and 750 and higher sales of the Sportster lineup accelerated sales to customers during the quarter, laying down a sound foundation for higher wholesale shipments to dealers in the fourth quarter. Our current price estimate for  Harley-Davidson stands at $64.79, which is around 4% higher than the current market price. The stock jumped 8% just after the announcement of quarterly results. See our full analysis for Harley-Davidson Domestic Retail Volumes Rebound In Q3 After retail sales in the U.S. remained essentially flat to slightly positive in the first half of the year, volumes rebounded to a 3.4% growth in Q3 on the back of pent-up demand and new model launches. The domestic market forms around two-thirds of the net shipments for Harley, which is why sales in the country play a crucial role in moulding the overall results for the company. The two main reasons why volumes were weak last quarter were the absence of the touring motorcycle Road Glide from the 2014 model year and low availability of the much anticipated lighterweight Street motorcycles. Potential Sportster buyers also decided to wait for the Street launch to compare the varying features and make an informed buying decision. Harley managed to overcome these obstacles in Q3, with the launch of the new Road Glide along with other 2015 model year launches in August. In fact, the Road Glide was the highest selling bike from the new model year, but only constituted 4% of the net retail sales this quarter, down from 8% in Q3 2013. This was because the model was only available since the latter part of the quarter, and is now expected to spur domestic sales in the next quarter. Harley also removed the bottlenecks that limited availability of the Street bikes in the U.S. in Q2, thereby witnessing strong growth in Street and Sporter sales in the country through the quarter. Proportionate sales of the Sportster and Street motorcycles increased nearly four percentage points compared to the previous year to 25.8% of the net retail sales this quarter. The 3.4% retail sales growth is in fact a milder reflection of the strong volumes this quarter, as the company was witnessing the 20% growth seen in the U.S. in Q3 2013, following the launch of the iconic Project Rushmore bikes in August last year. Going forward, Harley expects to ship 46,500-51,500 motorcycles in the last quarter, flat to 10% above the last year’s fourth quarter shipments of 46,618 motorcycles. With anticipated strong demand of the Road Glide and Street bikes in the fourth quarter, motorcycle shipments in the domestic markets could get a boost, consequently pushing overall shipments for the fourth quarter closer to the higher estimated figure. In particular, the Street 500 and 750 are expected to contribute additional sales to the top line. The two models are expanding Harley’s reach to new and outreach customers, which means that the company’s sales in the coming future could remain strong in its biggest sales-base, the U.S.. This is despite the ageing core customer base of baby boomers. Harley continues to expect shipments of the Street bikes to range between 7,000-10,000 units for the full year, buoyed by encouraging initial sales in the U.S., India and Southern Europe. Now the company plans to increase shipments of the Street in Europe in the fourth quarter, and enter other markets by next year, which should see volumes rise significantly by this time next year. Gross Margins Decline On Lower Revenues As expected, Lower wholesale shipments dragged down net revenues and consequently gross margins for Harley’s motorcycle business this quarter. Margins fell to 34.9%, down 40 basis points from last year, but this figure was still above the company’s expectations. A higher proportionate mix of the Street and Sportster motorcycles, which carry thinner margins, was expected to lower the margins. However, led by strong Road Glide sales, sales of touring motorcycles also improved simultaneously, somewhat offsetting the impact of the lower range bikes. Harley expects operating margins for the motorcycle division to range between 17.5% to 18.5% for the full year, up from 16.6% in 2013. Despite operating margins remaining low at 12.9% in Q3, margins through the first nine months stand at 21.3%. This means that the company now expects another quarter of lower margins, due to the unfavorable mix impact and higher start-up costs related to the Street motorcycles. The third quarter figure was also negatively impacted by an additional $14 million, almost 10% of the net operating income, due to the two recalls issued in the quarter. Harley’s operating margins in the fourth quarter might be above the expected levels due to higher shipments, as well as due to the benefits of restructuring that completed last year. While motorcycle fixed costs were 20%-25% of variable costs at the beginning of restructuring operations in 2009, the figure is expected to decline to 15%-20% for the full year. This will lower the degree of operating leverage for the company, and mean higher margins on incremental sales. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Lear Corporation Pre-Earnings: Strong U.S. And China Sales To Boost The Top Line In Q3
  • By , 10/22/14
  • The automotive interiors supplier  Lear Corporation (NYSE:LEA) is scheduled to announce its third quarter results on October 24. With increases in global vehicle production levels this quarter, fueled by growth in North America and China, sales for automakers and in turn for automotive interior manufacturers should also rise. Lear’s top line has expanded by nearly 11% in the first half of the year mainly on the back of higher vehicle demand as well as more interior content per vehicle. We expect another quarter of strong revenue growth for the company on the back of higher global vehicle production, which could slightly be offset by lower volumes in Europe and South America, given the tough economic conditions. However, despite lower overall vehicle volume sales in Europe and South America, premium vehicle volumes have remained strong in both the continents. This means that even though Lear could have supplied seating and electrical interiors to a lesser number of vehicles in Europe and South America this quarter, higher average content per vehicle due to higher proportionate sales of luxury and electrical vehicles could boost the net revenues. Lear has also aimed to increase its productivity in both the seating and electrical divisions by removing bottlenecks in the operations in the Americas and by leveraging a low-cost structure. Seating division margins could rise to 5.5-6% again for the full year, after falling 120 basis points to 4.8% in 2013, while margins for the electrical division are expected to range between 11.5-12% this year, twice the 2011 levels. We estimate a $98.92 price for Lear Corporation, which is roughly 19% above the current market price. See our full analysis for Lear Corporation Automotive stocks have in general taken a hit in recent times. The overall S&P Index has declined in the last three months, but the stocks of GM and Ford, the largest clients of Lear that formed 44% of the net sales last year, have fared even worse. Lear’s stock has performed slightly better than the stocks of automakers in the last three months, but still lags the growth in broader indices. The company’s stock has plunged by nearly 20% since reaching a high of $103.74 on September 8. However, we value Lear’s stock higher than the current market price due to anticipated strong worldwide vehicle demand, increasing content per vehicle and expanding margins, as the company looks to increase cost-effectiveness. U.S. And China Sales Remain Strong, Could Boost Lear’s Top Line North America sales formed 37% of the net sales for Lear through the first half of the year, and continual strong vehicle production levels in the region could boost the company’s top line in Q3 as well. Light vehicle production in North America rose almost 8% in the third quarter, after rising 4% in the first half of the year. This increase in vehicle demand also led to an 8% year-over-year increase in GM’s retail sales in the quarter in the U.S., while the company’s global volumes grew 2% during this period. Lear should also benefit from higher sales for GM, as well as for its other automaker clients such as BMW, Daimler, Volkswagen, Fiat, Hyundai, Jaguar Land Rover, Peugeot and the Renault-Nissan Alliance, in North America. On the other hand, although the rise in vehicle production in China is estimated at 9% this year, down from double-digit growth percentages in the last couple of years, the country’s automotive market is still the fastest growing in the world. GM’s retail sales in China increased by 12% in Q3, reflecting continual strong vehicle demand in the country where disposable incomes continue to rise. On the other hand, although Ford sells considerably lower volumes compared to its compatriot GM in China, the former’s sales are up 30% so far in the year, outpacing the growth in the country’s overall automotive market. This bodes well for Lear as high vehicle demand means inflow of additional business for the company. Bolstered by high vehicle production volumes in the U.S. and China, Lear’s revenues could rise by 8.5-10% this year, as estimated by the company. Higher Content Per Vehicle Owing To Strong Electric And Luxury Vehicle Demand Why we expect Lear’s revenues to rise by a high single-digit percentage this quarter, more than the expected rise in global vehicle production volumes, is because of an estimated simultaneous increase in revenues per vehicle. This is because of increased sales of electrically-controlled and luxury vehicles. Electric and hybrid electric vehicles almost double the electrical content requirement of a car. On the other hand, premium vehicles require more electrical content, as well as higher seating content per unit. Demand for these vehicles has remained high, and this should boost Lear’s content per vehicle and consequently the net revenues in Q3. Lear supplies electrical content for the Chevy Volt and Cadillac ELR, manufactured by GM, the company’s largest client. Cadillac ELR began selling in December in the U.S. and has sold almost 900 units since. Electric vehicle sales in the U.S. have increased 25% year-over-year through September, and could continue to rise as consumers switch to economically and environmentally viable vehicles with improvement in battery charging infrastructure in the country. Lear supplies seating and electrical interiors to premium automakers such as BMW, which constituted around 10% of the net sales in 2013, and also to companies such as Volkswagen’s Audi, Daimler’s Mercedes-Benz, Chrysler and Jaguar Land Rover. In fact, Lear is the exclusive seating provider for some of the compact models made by the German automakers BMW, Audi and Mercedes in Europe. Although overall automotive volumes have still not picked up in the European Union following the double-dip recession, luxury vehicle volumes have grown in the region. BMW reported a strong 7% rise in vehicle volumes in Europe last month. This means that even though overall vehicle production volumes could drop in Europe this quarter, continual growth in premium vehicle sales should benefit Lear’s business. Europe and Africa form the largest sales-base for Lear, contributing almost 40% to the net sales in the first half of the year. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Dr. Pepper Snapple Pre-Earnings: Margins Could Expand On Higher Volumes And Pricing
  • By , 10/22/14
  • tags: DPS KO PEP BUD
  • Dr Pepper Snapple (NYSE:DPS) is scheduled to announce its third quarter results on October 23. While the S&P 500 Index has declined in the last three months, the company’s stock has grown by over 9%, outpacing the growth in  The Coca-Cola Company (NYSE:KO) and  PepsiCo ‘s (NYSE:PEP) stocks during this period. Dr. Pepper mainly operates in the U.S. and Canada, which together form over 90% of the company’s valuation by our estimates, while the rest is contributed by Mexico and the Caribbean. In particular, we estimate that the carbonated soft drinks (CSD) portfolio in North America generates over 70% of the net sales for Dr. Pepper. As the demand for CSDs continues to decline in the domestic market, we don’t expect a meaningful year-over-year increase in the Texas-based manufacturer’s top line this quarter, in line with the company guidance of flat to 1% revenue growth for the full year. But Dr. Pepper could generate additional cash flow and thereby create value for shareholders in Q3 by expanding margins.  We have a price estimate of $56.81 for Dr Pepper Snapple, which is around 11% lower than the current market price. The company expanded its operating margins by almost 400 basis points to 20% through June. In contrast, Coca-Cola and PepsiCo improved their margins by only 20 and 50 basis points to 23.9% and 15.9% respectively during this period. If long term margins for Dr. Pepper’s North America CSD division rise to 26%, up from our current estimate of 23.4%, there would be a 10% upside to our valuation for the company. See Our Complete Analysis For Dr Pepper Snapple Beverage Volumes In The U.S. Could Remain Flat To Negative Despite growing consumer concerns over the high sugar and calorie content of soft drinks, which has stalled growth in the U.S. CSD market for nine consecutive years, Dr. Pepper has managed to secure steady growth by increasing its market share and improving its operating performance. The domestic CSD market is mature, with Coca-Cola, PepsiCo and Dr. Pepper accounting for almost 90% of the industry-wide volumes. According to our estimates, Dr. Pepper’s market share has risen in each of the last four years, reaching 17.5% last year. According to Wells Fargo, Dr. Pepper’s soft drink volumes and net pricing each grew 0.4% year-over-year in Q3 in measured convenience store channels, buoyed by an overall jump in CSD demand in the retail space during this period. We expect net soda volumes for the company to grow only slightly, if at all, in the U.S. this quarter. Dr. Pepper’s achilles heel in the domestic market has been its underperforming non-carbonated beverage portfolio. While volumes in this segment have grown for both Coca-Cola and PepsiCo, Dr. Pepper’s lack of strong products in the fast growing segments such as organic juices and sports drinks has seen the company’s non-sparkling beverage volumes decline in both Q1 and Q2. Due to lower promotional activities, and the overall slump in juice volumes, as consumer shift away from calorie-fueled beverages, volumes for the juice brand Hawaiian Punch declined 8% and 12% in the first and second quarters respectively. This quarter could entail more of the same for Dr. Pepper’s ailing juice brand. On the other hand, Snapple volumes also declined last quarter, as Dr. Pepper deprioritized the value line, which typically formed around 10% of the ready-to-drink (RTD) tea brand’s volumes. Tea carries a positive consumer perception as a convenient and healthier hydrant containing antioxidants that boost metabolism. Snapple and Diet Snapple are established products in the RTD tea segment, and together hold a market share of 8% with sales of over $400 million last year. Although volumes could again fall for Snapple this quarter due to lower sales of the value line, a favorable price mix due to higher sales for the premium business could boost the top line. The Snapple premium business increased 1% in the last quarter, and Dr. Pepper looks to leverage the high demand for iced tea to increase Snapple sales, but at the same time push for higher sales of the premium higher priced packs, which contribute more to the margins. Mexico Volumes And Sales In Focus Amid Increased Taxes Despite the soda tax enacted in Mexico at the beginning of the year, Dr. Pepper’s beverage volumes in Latin America rose by 5% in the first half of the year. Mexico, which forms around 90% of the company’s business in Latin America, had imposed a one-peso-per-liter (~8 cents) tax on sugary sodas, effective as of January 1, as the country battles widespread obesity, diabetes, and other health issues. In fact, around 32.8% of Mexico’s population in obese, the highest figure for any country. Around three-fourths of Dr. Pepper’s beverage portfolio in the country is subject to the soda tax. The tax has on an average made soda more expensive by around 8%. As over half of Mexico’s population lives below the national poverty line, price-sensitive customers could have been dissuaded from soft drink consumption. However, an increase in volume sales so far this year reflects high demand for Dr. Pepper’s products, especially the carbonated water brand Penafiel, which grew by an impressive 22% through June. If Dr. Pepper’s Latin America volumes continue to rise this quarter, revenue-growth could be high in the region, given the higher net pricing. Even though the higher product prices don’t impact the margins, as the company just passes the added tax onto customers, Dr. Pepper’s operating margins rose 180 basis points year-over-year to 14.1% in the first six months, fueled by lower commodity costs and productivity improvements. Profitability could improve again this quarter if volumes remain high, similar to the trend seen in the last two quarters, despite the impact of the soda tax. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    VeriSign Q3FY14 Preview: Company Strives To Regain Growth In The Face Of Competition
  • By , 10/22/14
  • tags: VRSN
  • VeriSign (NASDAQ:VRSN), the leader in the Domain Name System (DNS) market with a 47% market share, is set to release its third quarter earnings for the financial year 2014 on October 23rd. VeriSign is the authoritative registry service provider for all .com and .net gTLDs (Generic Top-Level Domains), as well as the sole registry service provider for gTLDs like .cc, .tv, .gov, .jobs, .edu and .name. The company registered a 5% increase in sales in the first half of 2014, with revenues of $499 million as against revenues of $476 million for the corresponding prior-year period, when in fact it was growing annually by 10%. This slowdown in the growth rate was primarily due to saturation in the .com domain, a fall in the renewal rates for .com and .net, and a rising demand for a large number of long awaited country code top-level domain names (ccTLDs) and other new generic top-level domains (gTLDs). The company expects the FY 2014 revenues to be $1.003 billion to $1.012 billion with an annual growth rate of approximately 4% to 5%. The non-GAAP gross margin is expected to be at least 80% and with a non-GAAP operating margin  of 59% to 61%. Our price estimate of VeriSign at $55.33 is at a 1.4% discount to the current market price. We will update our valuation after the Q3 2014 earnings release. See our complete coverage of VeriSign Domain Name Saturation, Declining Renewal Rates, And Growth In ccTLD Leads To Declining Growth The .com domain name has be come increasingly saturated in recent years, causing limits to new additions. In Q2 2014, after processing around 8.5 million registrations, only 0.42 million net additions could be made to the .com domain root zone. In contrast, 1.22 million net additions were made in Q2 2013. This decline might be further compounded by the price hike in the .net domain annual fee from $6.18 to $6.79 beginning February 2015. The total base of active registered domain names, at the end of June 2014, stood at 128.9 million (113.7 for .com and 15.2 million names for .net), representing a 3.7% year-on-year growth. The .com and .net renewal rate for the Q1 2014 was 72.6% compared to 73.2% in Q1 2013. Renewal rates cannot be measured until 45 days after the end of quarter. VeriSign estimates the Q2 renewal rates were 71.7% as against 72.7% for the same period last year. Management attributed this decline mainly to changes in search algorithm, lower first-time renewal rates in certain geographies, and the promotions by previous year registrars (or lack thereof). The slowing growth has been further exacerbated by the growth of .ccTLD domain registrations in non-US markets. The .ccTLD is growing in popularity amongst companies due to the favorable government policies regarding their adoptions. The ccTLDs can only be used by countries and territories. An increasing number of businesses, especially SMEs, are migrating to this domain because of policies intended to encourage their adoption.  These include  a registration requirement relaxation, free domain names subject to specific usages, and so on. In its Q1’14 Domain Name Industry Brief, VeriSign reported that .ccTLD registrations have grown at more than thrice the growth rate of the .com and .net domain names. VeriSign Increases Marketing Spend To Sustain Top Position VeriSign has increased its year-on-year marketing spend by 6% to $44 million in the first half of 2014. The company expects the marketing expenditure to rise over the coming quarters. The company channels the majority of its marketing campaigns through affiliate registrars such as GoDaddy and BigRock, or other resellers to promote its .com and .net domain registrations and drive awareness for the brand across geographies. It has also applied for International Domain Names (IDN) for overseas market. Hence, once they’re available, it plans to spend on partnering with overseas registrars for the marketing of its offerings. Recently Google announced to act as a registrar and sell a package of services, including domain names, with the aim of developing online presence for smaller businesses in the US. The .com and .net domains would be amongst its offerings. Hence, the management believes that Google acting as a “retail outlet” for their products will greatly aid in expanding its reach. Long Term Sustainability of gTLD Remains Questioned According to VeriSign, there are some uncertainties regarding the long term growth of new gTLDs. The gross registrations for the first half 2014 is over 1.6 million. They haven’t gone through a renewal cycle yet to arrive at a net figure. The growth has been rapid with a lot of sales of premium domain names. A majority of registrations is suspected to have been done by speculators. Speculators buy popular domain names to sell them for a profit later on. Hence the sustainability of these gTLDs is definitely a question which only time can answer. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    Cliffs' Earnings Preview: Lower Iron Ore And Coal Prices To Weigh On Results
  • By , 10/22/14
  • tags: CLF RIO VALE MT
  • Cliffs Natural Resources (NYSE:CLF) will announce its third quarter results on October 27 and conduct a conference call with analysts the next day. We expect lower iron ore and metallurgical coal prices to negatively impact Cliffs’ quarterly results year-over-year. In addition the company will report a $6 billion impairment charge mainly due to the depressed commodity pricing environment as a part of its third quarter results. The third quarter earnings release will be the first since Casablanca Capital won control of the company’s board through a proxy contest. The new management’s stated strategy for Cliffs involves focusing on its U.S. Iron Ore business segment and the sale of its other operations. The conference call on October 28 will provide an opportunity to the new management to further voice its plans to operate the company competitively in a subdued iron ore and coal pricing environment. See our complete analysis for Cliffs Natural Resources Iron Ore and Coal Prices Iron ore and metallurgical coal are important raw materials for the steel industry. Thus, demand for these raw materials by the steel industry plays a major role in determining their prices. Though a majority of Cliffs’ iron ore sales are to the North American steel industry, sales agreements are benchmarked to international iron ore prices. International iron ore prices are largely determined by Chinese demand since China is the largest consumer of iron ore in the world. It accounts for more than 60% of the seaborne iron ore trade. Weak demand for steel in China has translated into weak demand for iron ore. Chinese steel demand growth is expected to slow to 3% and 2.7% in 2014 and 2015 respectively, from 6.1% in 2013. A slowdown in economic growth has tempered the demand for steel. China’s GDP growth is expected to slow to 7.3% and 7.1% in 2014 and 2015 respectively, from 7.7% in 2013. Further, a Chinese government crackdown on polluting steel plants has forced many of them to shut down. In addition, the tightening of credit by Chinese banks to steel mills that are not performing well, will negatively impact these mills’ prospects. Furthermore, the Chinese leadership has proposed structural reforms of the economy, shifting the emphasis from investment and export driven growth to services and consumption led growth. Such a transformation of the Chinese economy may negatively impact Chinese demand for steel in the long term. The weak Chinese economic prospects are captured by the Manufacturing Purchasing Managers’ Index (PMI). The Manufacturing Purchasing Managers Index (PMI) measures business conditions in the manufacturing sector of the concerned economy. When the PMI is above 50, it indicates growth in business activity, whereas a value below 50 indicates a contraction. Chinese Manufacturing PMI, reported by China’s National Bureau of Statistics, stood at 51.1 for September, and has ranged between 50.2 and 51.7 for the whole year. With weak Chinese manufacturing growth, demand for steel is expected to remain subdued in China. On the supply side for iron ore, expansion in production by majors such as Rio Tinto and BHP Billiton despite weak Chinese demand, has created an oversupply situation. A combination of weak demand and oversupply is likely to result in lower iron ore prices in the near term. Iron ore prices stood at $82.38 per dry metric ton (dmt) at the end of September, around 38% lower than at the corresponding point of time last year. As per Goldman Sachs, the worldwide surplus of seaborne iron ore supply will rise to 175 million tons in 2015, from an expected 72 million tons for 2014 and 14 million tons for 2013. In view of the persisting oversupply situation, iron ore prices will remain subdued in the near term. This will negatively impact the company’s third quarter results. China is also the largest consumer of metallurgical coal in the world. Demand for the commodity by the Chinese steelmaking industry has been weak, adding to subdued demand from other major consumers such as Japan and the EU. Weak demand coupled with an oversupply situation due to expansion in production by major mining companies, has resulted in plummeting coal prices. This will have a negative impact on Cliffs’ North American coal business, which primarily sells metallurgical coal, whose prices are linked to prices of Australian metallurgical coal. The benchmark Australian metallurgical coal price stands at around $119 per ton, around a third of its 2011 peak level of $330 per ton. In view of the oversupply situation, metallurgical coal pricing is expected to remain subdued. Cliffs’ Response and Other Developments In order to remain competitive in a subdued iron ore and coal pricing environment, Cliffs has cut costs as well as adopted a strategy of disciplined capital allocation. The company had earlier reduced its planned capital expenditure for 2014. The revised full-year capital expenditure range for 2014 is $275-$325 million, around $100 million lower than its original guidance of $375-425 million, and approximately 65% lower year-over-year. Around 75% of the planned reductions in capital expenditure are targeted at the company’s high-cost Eastern Canadian Iron Ore operations and North American Coal operations. The company recently announced that it expects to record an impairment charge of approximately $6 billion on its seaborne iron ore and coal assets in the third quarter. The impairment charge is mainly due to the company’s revised outlook on pricing and market conditions for these commodities. The new management favors focusing on the company’s U.S. Iron Ore operations and the sale of its high-cost assets. These include the assets of the company’s North American Coal, Eastern Canadian Iron Ore and Asia-Pacific Iron Ore business segments. The new management has already signaled its intent to sell off assets from the North American Coal division. In an SEC filing, the new management reversed the decision of the former management to idle the Pinnacle coal mine, if market conditions did not improve. The reason given for this decision was to ‘facilitate unlocking the value of assets’. Keeping the mine operational is desirable if it is to be sold off. Expectations from Conference Call With the subdued iron ore and coal pricing environment set to continue in the near term, we would like to know whether the company has identified any other opportunities for reductions in operating costs or capital expenditure. We would also like to know if any asset sales, as per its strategy, are on the horizon. More clarity on this front will shed some light on the road ahead for Cliffs. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
    GM Logo
    Earnings Preview: Strength In US and China Should Keep GM's Topline Growing
  • By , 10/22/14
  • tags: GM F VLKAY
  • General Motors (NYSE:GM) is scheduled to announce its Q3 FY14 earnings on October 23. In the second quarter, GM’s earnings were down on account of high expenses related to car recalls but strong core performance meant that the company’s revenues were slightly higher compared to last year. Net Revenue for the quarter came in at $39.6 billion, slightly higher than the same figure in the previous year’s second quarter. The increase of $600 million was attributable to the effects of a favorable sales mix, higher average pricing and increased revenue from GM’s Financial Division, which was partially offset by lower wholesale volumes and the negative impact of the translation of the Brazilian Real and Argentinian Peso to the U.S. dollar. In our note below, we take a look at the numbers we will be watching out for in the latest earnings report. We have a  $40 price estimate for General Motors, which is about 30% more than the current market price. North American Operations Steady North America accounts for about 35% of the company’s unit sales. In the second quarter, GM North America’s (GMNA) revenues came in $2.2 billion higher at $25.7 billion compared to the second quarter of fiscal 2013. This increase of close to 10% was driven primarily by higher average unit prices in the region. The company’s market share in the continent stood at 17.2%, flat versus the market share in last year’s second quarter but up 0.9% from the first quarter, with a 17.9% share in the U.S. Excluding the impact of recall expenses, GMNA’s operating margin was above 9% for the quarter and up 1.15% for the first six months of the year compared to the same period in the previous fiscal year. With a number of new or refreshed model launches throughout the year, margins as well as unit sales should continue to remain strong. Furthermore, a slew of model refreshments under the Chevrolet and Cadillac brands have pushed up the average pricing and helped GM realize higher margins. Through the four quarters of 2013, the North American operating margins rose 60 basis points to 7.8%, spurred by the Chevrolet, Buick, Cadillac and GMC, with all increasing their retail market shares in North America. European Operations Could Improve Europe has been a worry not only for GM but for a number of other automakers as well. The European automotive market was in a free fall till 2012. The market was in red till the first half of 2013, but things improved in the second half of the year. Now with the market rising, there is once again a renewed optimism about Europe. GM plans to release 23 new or refreshed models by 2016 and hopes to become profitable in the region by the mid-decade. In the second quarter, GM’s European operations were unprofitable as expected due to restructuring related expenses. However, the company’s subsidiary Opel Vauxhall showed continued strength in the region, with sales increasing 4% and market share increasing by 0.08% year-to-date. Even though GM’s overall market share in the region is down to 6.8% due to the shutdown of Chevrolet’s European operations, its overall market position in Europe is improving and this effect can be directly attributed to Opel Mokka and Insignia, the company’s new flagship brand. The company is planning to undertake investment well in excess of $5 billion over the next few years in order to develop 27 new cars and 17 new engines under the Opel brand, which will start offering budget cars for the first time under its nameplate. GM’s market share in the European car market has shrunk from 10.4% in 2008 to 6.8% in the present quarter, a major decline when you factor in the 23% decline in the market size over the same period. The U.S. based auto maker is trying to restructure its European operations in order to return to profitability by 2016 and aims to reach a 5% operating margin by 2022. Chinese Sales Should Remain Strong China is GM’s largest automarket and accounts for over 35% of the company’s unit sales. GM’s sales in China were up 8% in the second quarter and the net income margin improved by 0.6% to reach 10% for the quarter. The automaker’s share of the world’s biggest auto market stood at 14.4% for the quarter, flat versus the share in the same quarter last year. GM’s market share is due to the growth in the company’s Cadillac, Buick and Wuling brands. The company also expects the sales growth rate of Chevrolet to catch pace in the future as sales of the new Trax crossover gather steam. Crossover and SUV demand in China is expected to grow at about a 10% annual rate and reach about 7 million units by 2020. With the help of lower prices, GM is targeting a 10% market share in the Chinese luxury market by the end of the decade. That could translate to more than 250,000 units annually just from the sale of luxury cars. If the proportion of higher priced vehicles rises, we could see a healthy increase in the average equity income earned per vehicle. Volkswagen overtook GM as the largest automaker in China in 2013, but GM is working to regain its position as the market leader in the country. The automaker has plans of building five more plants in 2014, in an effort to increase its manufacturing capacity by 65% by 2020. GM expects its China sales to grow by 8-10% this year, in line with the overall growth of the Chinese market. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    F Logo
    Earnings Preview: Strength In China, US Should Keep Ford's Bottomline Growing
  • By , 10/22/14
  • tags: F GM TM
  • Ford Motors (NYSE:F) is scheduled to announce its Q3 FY14 earnings on October 23. The company finished 2013 on a high, recording an 18th consecutive quarter of pre-tax profit and its automotive division posted unprecedented cash flow of $6.1 billion for the full year. However, shares of the automaker fell soon thereafter when the company announced that it expects its margins to face a downward pressure in 2014. For 2014, the automaker anticipates the full year profits to be in the region of $7 billion to $8 billion. The cautious guidance on profits reflects the company’s plans for a comprehensive re-haul of the company’s product line up. In 2014, the automaker will roll out 23 new models globally, the most aggressive product launch made by the company in its history. We have a  $18.66 price estimate for Ford, which is about 20% more than the current market price. North America To Deliver Most Of The Profits In the second quarter, Ford’s North American wholesale volume declined by 5%, while its revenues declined by 3%. The decline in revenue is explained by lower market share and an unfavorable change in dealer stocks, offset partially by higher industry sales. The U.S. auto market, the biggest and most profitable market for Ford, is on pace to record a 7.6% growth on last year’s volumes. Ford’s total U.S. market share was 15.3% in the second quarter, a decrease of 1.2% from a year ago and flat with the previous quarter. This drop reflects the planned reductions in daily rental sales, a lower share of Ford’s Edge and Focus in the sales mix and the reduced production levels of the F-series. The company closed many of its factories during the previous quarter in order to retool them for the new F-series trucks, which will be aluminum bodied instead of steel and thus more fuel efficient. In order to compensate for the decline in production, the company pushed out extra inventory to its dealerships and offered several incentives to clear out the inventory. The operating margin for region was 11.6%, an increase of 1 percentage point from 2013 and pre-tax profit was $2.4 billion, up $119 million from last year’s record profit. In this quarter, we expect the trend to reverse as most of the decline in the number of units sold in the previous quarter was due to the shut down of production in Ford’s factories. Absent that, the company’s sales should have stayed flat or even increased compared to the past year. With the launch of the new, lighter bodied F-150 series of trucks, we’d expect Ford to deliver higher numbers and higher profits from North America in this quarter. European Operations Could Improve Further In Europe, the company expects reduced losses as the European transformation plan remains on track to achieve profitability by 2015. The year started off poorly for Ford in Europe, but a spate of model refreshments and new introductions have helped the automaker outperform the broader market in the last few months. Ford had earlier aimed to introduce a total of 15 new or refreshed models in Europe over the next five years, but now plans to raise that figure to 25, starting with the debut of the affordable SUV EcoSport early this year. In addition, the European built Mustang is ready to be introduced as well. The automaker is also adding a premium car Vignale to its product portfolio, which the company believes should improve its image. It is highly critical that brand Ford resonates positively with Europeans. A strong brand will help Ford accelerate sales whenever the market starts consolidating again. Chinese Sales Keep On Surging Ford’s sales in the country were so strong in 2013 that the automaker overtook Honda and Toyota as the fifth largest shareholder of auto sales by foreign companies in the region. Ford’s sales have shown continued strength in 2014 as well as the company recorded a 45% expansion in the first quarter of 2014 and a 26% expansion in the second quarter of 2014. The company is set to overtake Nissan and Hyundai in the region. Vehicle sales were boosted by the introduction of seven new or refreshed models including the EcoSport, the Kuga, the Fiesta and the Mondeo, which appeal to the value seeking Chinese customers. With close to a million unit sales, China has now become one of the biggest markets for Ford. It is also important to note that sales growth in 2013 was unusually higher due to the introduction of a number of new, mass-appealing vehicles. We expect this trend to continue as the company has announced that it plans to add 15 new models to its fleet in China.  With a number of higher end models still to be introduced (such as the Lincoln brand), the next set of vehicle introductions should have a greater contribution towards the profits, if not towards the unit sales growth. See full analysis for Ford Motors See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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